Trading in the foreign exchange (forex) market revolves around currency pairs. Whether you are new to forex or an experienced trader, knowing which pairs to focus on and how exchange rates affect them is key to long-term success.
In this guide, we’ll explore the major, minor, and exotic pairs, their benefits and drawbacks, and how traders can profit.
What Is a Currency Pair?
A currency pair is the quotation of one currency against another. For example, EUR/USD shows how many US dollars are needed to buy one euro.
How does it work?
When trading forex, you’re buying one currency while selling another. For example, if you believe the euro will strengthen against the US dollar, you buy EUR/USD. If the euro weakens, you lose money.
Exploring Currency Pair Dynamics
Currency values shift due to a range of factors, including:
- Economic indicators (GDP, inflation, employment data).
- Interest rates and central bank policies.
- Geopolitical events that create uncertainty or stability.
- Market sentiment and speculation.
Comparison of Major, Minor, and Exotic Currency Pairs
| Type of Pair | Examples | Liquidity | Spread (Cost) | Volatility | Risk Level | Best For |
| Major Pairs | EUR/USD, GBP/USD, USD/JPY, AUD/USD | Very High | Low (tight spreads) | Moderate | Low–Medium | Beginners & long-term traders |
| Minor Pairs | EUR/GBP, AUD/JPY, NZD/JPY | Medium | Moderate | Moderate–High | Medium | Intermediate traders |
| Exotic Pairs | USD/TRY, USD/ZAR, EUR/SEK | Low | High (wider spreads) | High | High | Advanced traders with higher risk tolerance |
Understanding Minor and Exotic Currency Pairs
- Minor pairs exclude the US dollar but involve other major currencies, such as EUR/GBP or AUD/JPY.
- Exotic pairs combine one major currency with the currency of a developing or smaller economy, such as USD/TRY (Turkish Lira) or USD/ZAR (South African Rand).
Minors and exotics may offer higher profit potential but often come with higher spreads and volatility.
The Major Forex Pairs
The “majors” are the most popular currency pairs, always involving the US dollar. They include:
- EUR/USD
- GBP/USD
- USD/JPY
- USD/CHF
- AUD/USD
- USD/CAD
- NZD/USD
Benefits of Trading the Major Currency Pairs
- High liquidity ensures smooth entry and exit.
- Tighter spreads make trading more cost-effective.
- Reliable price action due to strong market participation.
Exchange Rates
Exchange rates represent how much of one currency is required to purchase another. Rates are influenced by:
- Central bank interest rates.
- Inflation levels.
- Global trade balances.
- Market speculation.
External resource: Learn more from the Bank for International Settlements about exchange rate influences.
How Can Traders Profit in Currency Pairs?
Traders profit by correctly predicting price movements. Strategies include:
- Day trading short-term fluctuations.
- Swing trading medium-term trends.
- Position trading long-term market fundamentals.
- Using leverage (with caution) to amplify returns.
FAQs
What Is a Cross-Currency Pair?
A cross-currency pair is any currency pair that does not include the US dollar, such as EUR/GBP or AUD/JPY.
What Is the Forex Market?
The forex market is the world’s largest financial market, with daily trading volumes exceeding $7 trillion, where currencies are exchanged 24/5.
Conclusion
Choosing the best forex currency pairs depends on your trading style and risk tolerance. Major pairs are ideal for beginners thanks to liquidity and stability, while minors and exotics may appeal to those seeking bigger (but riskier) opportunities. Understanding exchange rates and pair dynamics will help you make informed decisions and develop a strategy that works for you.
Ready to start trading? Open your account with FXPrimus today and explore the world’s top currency pairs.